First Beverage Group said that India's Tata Group has acquired a majority of First Beverage's shares in functional water player Activate. No specific $$ amount was given. Move had been expected after Tata committed to $21 mil in growth capital for LA-based co, run by newly elevated ceo Dan Holland. News came as reports from India, citing slowing growth in global tea demand and rising prices, have been speculating that Tata will accelerate its diversification into other food/bev plays. Speaking of Activate investment, Tata Global Beverages ceo Peter Unsworth said, "We have ambitious growth plans and a vision to become the leader in the 'good for you' beverage sector. This investment is a further step on our strategic journey to bring brands and products to consumers that meet their health and wellness, convenience and sustainability needs" . . . Jones Soda was expecting to close sale of 1.7 mil common shares to Glengrove Small Cap Value Ltd for gross proceeds of $2 mil. Jones had established committed equity financing facility with Glengrove . . . As anticipated, Coca-Cola Bottling Co Consolidated extended incidence pricing agreement with Coca-Cola for another year, to Dec 31, 2011.  

Fiji Water marketer Roll International, which has been forced to refine its methodology as its claims of being "the world's only carbon-negative bottled water" have been challenged by likes of Mother Jones, Fast Company and Triplepundit.com, has now been targeted by class-action suit brought by Newport Trial Group in US District Court in Santa Ana, Calif. Suit brought on behalf of Desiree Worthington and other individuals seeks restitution for "the false claims from which [Fiji Water Company has] richly profited," arguing that "forward crediting" accounting methodology used by Roll has been discredited. "Defendants do not remove more carbon pollution than they create; they simply claim credit for carbon removal that may or may not take place - up to several decades in the future," contends suit . . . PBEV LLC, Ala-based marketer of Killer Buzz energy line, has sued Hansen Natural, claiming co's Killer-B Nitrous Monster energy drinks infringe on its trademarks, UPI reported. Hansen has already filed papers in Delaware court seeking dismissal of suit brought in federal court in Ala, news service reported. Earlier, Calif court ruled it didn't have jurisdiction, given Killer Buzz isn't sold in that state. PBEV owner Stan Pate has claimed that Killer-B name is too similar, as is use of ingredients based on stinging insects - bee pollen and honey for Killer-B, synthetic giant hornet saliva for Killer Buzz. Line, earlier owned by Ark-based Vespa, did $1 mil in biz last year. Monster unit also is embroiled in suit with brand called Hammer (BBI, Dec 16).  

As PepsiCo looks to beef up its nutritional offerings, co is testing "new pureed fruit product it considers thick enough to be a snack rather than a beverage," reported Wall St Journal, delving into announcement of line 2 weeks ago. Tropolis, which has 80 calories and 100% of daily vitamin C requirement, will be sold in 4-pk pouches for $2.49-3.49 in Midwest test mkts next month. "It's not clear how profitable a niche product that is more complicated to produce and distribute than juice will be," noted paper. Coca-Cola sells a "squeezable fruit" called Multon Fruit Mix in Russia but had no comment on whether that may move to this market, while DPS has "no immediate plans" to launch similar fruit product. Even while making effort to expand healthy offerings, PEP still took heat. "They start out with real food, so let's give them credit for applesauce and mashed-up bananas," said NYU nutrition prof and gadfly Marion Nestle. But "the rest of it is sugar," and children "would be better off eating an apple or a banana." A 3.17-oz serving of Tropolis contains 11g of sugar. It's launching in Apple, Grape and Cherry flavors.  

In interview this week in Wall St Journal, Dr Pepper Snapple ceo Larry Young expressed frustration over pricing environment this past summer. "Walmart and everybody else learned a real lesson. They went way too deep on price, and it didn't pick up the volume," said Larry. "When everyone goes down in price, there's no reason to buy. You stock up, put it in your pantry and don't buy again for 6 months," he added. At least, "now throughout the industry" there will be "rational pricing," in his opinion. Asked about rising commodity costs, he replied, "The good thing is that it's an industry issue. It's up from last year but we think we can manage just fine." Larry estimates total cost of goods is up 2%, but noted, "we'll offset that with pricing and efficiencies in the supply chain." As for economic recovery, Larry sez, "we're seeing an uptick," but "it's not where we projected it would be last year." In interview he also indicated DPS has no plans to go international but rather has "a road map that gives us a tremendous amount of opportunity for the next 10 to 15 years in the US." What does he worry about? Besides monitoring economy, "one other thing that keeps me awake at night is soda-tax legislation," he admitted. While industry has been successful for most part so far, he warned, "it's the one that slips in that we don't notice. The biggest effect would be that they'd be putting a tax on people at the wrong time."  

As for several other hi-profile brands, 2010 proved a reset year for Adina Holistics, seeing its cofounders exit, control consolidated in hands of longtime allies of core investor John Bello and co hq relocated from SF to Norwalk, Conn, move just completed. "Now we see each other face to face," said Norm Snyder, old Bello ally brought in as ceo, speaking of crew that worked together in same town for Bello's earlier SoBe venture.

Venture backed by influential parties like Bello and former Pepsi chief Roger Enrico hasn't come close to meeting initial expectations so far, scoring just 327K 12-unit cases in 1st 9 mos of year (see below). It's been dogged by tuff economic environment that undermined its superpremium positioning and general challenge of establishing brand as neither arcane nor just another enhanced water line. Over past year co has worked hard to shave cost of goods, with eye toward getting price well below $2, and has backed off a bit from mainstreaming the monkey-emblazoned brand as second coming of SoBe. It's sticking with organic and Fair Trade as core values, but adopted more subtle tacks than "Show me the monkey" to demystify brand and "convince the masses that it's not castor oil," as Norm put it. As 2011 approaches, it's ready to enter zero-calorie realm, has refined distribution map and is well-funded, about to draw down 2d tranche from round of past year. Details:

Pricing, Positioning Tweaks "Big challenge," Norm allowed, has been degree of discounting by Coke and Pepsi behind brands like Vitaminwater, SoBe Life Water, Fuze and Honest Tea. But color of Holistics formulations makes it clear that it's not just another enhanced water, while Life Water's cutover from glass to plastic bottles has created vacuum for glass-bottle Holistics. "It's an easy switch for the SoBe drinker to go to Holistics despite our positioning more toward the healthy side," Norm said. One encouraging sign, signaled by Facebook and email traffic, is that greater proportion of males are coming into franchise. Snyder chalks it up simply to perseverance: "Sooner or later, they'll try you."

To deal with pricing dilemma, co has experimented with $1.49 sticker and Snyder says "we'll probably get it out more broadly" as velocity picks up and aggressive talks with vendors gets cost of goods down. "Volume cures a lot of ills," said operations-oriented exec. Recall that co recently inked new glass deal, while added copacker sites will help cut shipping costs. And with consumers constantly complaining about difficulty of opening ROPP (roll-on pilfer-proof) cap, brand is switching to lug cap, in process shaving costs there.

Launches 2 Zero-Cal Entries, Including Resveratrol Play With consumers clamoring for lower-cal drinks even in new-age realm, Adina is finally getting into game. In Feb it launches zero-cal Wild Black Cherry, which plays on bennies associated with key wine ingredient resveratrol, and Mandarin Melon Berry, blend of tea and vitamins. Sweetener melds stevia and erythritol. Tho co by now had hoped to be riding breakout flavor in core line, that hasn't happened, with flaves like Cranberry Grapefruit, Guava Coconut, Pomegranate and Orange Mango fairly tightly bunched. Co certainly can live with that, Snyder indicated. Slower performers like Jade Green Tea likely will get turned over.

Distributors Gettin' a Rhythm; DPS Off to Good Start "For the most part, our distributors are doing a good job," said Norm, citing Big Geyser in NY, recently re-enlisted Haralambos in LA, Kalil in Ariz and Buckeye in Ohio. Dr Pepper Snapple Group operation in NorCal is off to "great start," Norm said; like others testing DPS system, Adina is hopeful that footprint will expand. "They're watching us closely" in NorCal and Pittsburgh operations and "we're going through the mating process," he said. Snyder also cited "progress in the Northeast" via shops G Housen and Great State. Also key to mix are former SoBe shops Intrastate, Griffin and Canada Dry Lansing in Mich and Central in Chicago.

9-Mo Data Shows 327K Cases, Narrow Gross Margin Data gleaned from financial documents by Adina outsider indicates co sold 327K 12-unit cases over 1st 9 mos of year, generating $2.8 mil in revenues. With COGS coming in at $2.4 mil, that made for 400K gross profit, for slim 14% margin. Co spent about $3 mil in marketing and $1.8 mil in genl/administrative.  

Steaz co-founder Eric Schnell, who'd been beatin' bushes for investment properties for 6Pacific Partners since leaving Steaz earlier this year, is ready to unveil his next entrepreneurial venture: all-natural line of "enlightened nutrition" shots that debut in I Am Healthy, I Am Happy, I Am Energized and I Am Sleepy formulations. Natural foods vet Eric, who earlier had worked at Country Life and Long Life Tea, has teamed with Westbrae and Hain Celestial vet Andy Jacobson to launch supplement line, packed in 2.5-oz straight-walled white bottles with SRP of $3.99. In pipeline are further sku's and 32-oz family-size bottles. Team has enlisted Christie Commns to help with launch, but is keepin' mum so far on identities of key investors, $30 mil supplement co that will distribute brand, cause with which it plans to tie in and copacker. Eric and Andy did say investors, private individuals based mainly on West Coast, bring relevant skills and contacts as well as money. Immediate plan is to open 1,000 natural-foods and nutrition doors by time brand makes official debut at Natural Products Expo West in Anaheim, Calif, in Mar. Eric said inaugural production run of $170K is already committed. Partners are aiming to be profitable from day 1. In keeping with sense of social mission, I Am LLC has been certified as a B company right out the gate.

Co ventures into realm that others have explored, of using shot format for range of functions beyond just energy or relaxation. Among those with broad functional shot lines are Happy Planet in Canada and PurBlu, which is restaging its Potions line as Tonic. Duo hope imagery on pack and in marketing will tap into positive-thinking credo of Tony Robbins or The Secret movie (tack that another recent launch, Rob's Really Good, also has taken). Line was formulated with help of naturopathic doc and master herbalist so that most key ingredients are represented in dosages of 1,500-3,000 mg rather than sub-1,000 amounts of other shots. Critical to brand success, consumers should feel effects of each sku within 20 minutes. Co went with top-grade ingredients like Sensoril ashwaganda extract for I Am Happy sku (intended to strengthen immune system, tho one needs to consume 2 bottles to get 250 mg of Sensoril that is supported in clinicals). Both Happy and Sleepy employ GABA, miracle amino acid that was at core of unsuccessful Jones Gaba line. Energy melds natural caffeine sourced from coffee, along with black tea, yerba mate, guarana and B-vitamins.

Lessons from Steaz Eric's movin' ahead with new project at time his old co, Steaz marketer Healthy Beverage Co, is undergoing further transition, displacing ceo and apparently narrowing focus back to natural channel (BBI, Dec 23). Eric wouldn't comment on recent developments there but disclosed that he'd originally hoped to bring Jacobson in as ceo of Steaz via 6Pacific investment. When offer was rejected by Steaz board and he left co, they decided instead to team up on new launch. Among lessons he learned from Steaz experience: don't take on too much capital or expand too quickly into untested channels. Use of still-unidentified supplement partner, with 40-person sales force, will eliminate need to employ either DSD or natural specialist UNFI, both key elements of Steaz approach. That should make early profitability more attainable, Schnell figures.  

We know you subscribe to BBI for our news coverage, so we don't often hop on a pedestal. But with a new year a-dawning, we thought we'd offer a few resolutions - fully aware that resolutions sometimes are meant to be broken. These ideas are derived from smart players we've learned from (many of them readers of this newsletter) as well as our own observations as a fly on the wall:
Better to be slightly starved of capital than over-endowed. Having not-quite-enough capital forces you to focus on key priorities and let the distractions go. By contrast, too much capital almost inevitably fosters waste. Besides, once retailers, distributors and prospective new hires know you have a lot of dough, their hands come out. So try to keep the round modest. Don't let the institutional guys talk you up by too many millions.
Make your mistakes off-Broadway. There's always been much to be said for foregoing the national landgrab and its concomitant capital raise in favor of starting small, in a market or two, preferably your backyard. Until the big Bev Bust not many paid it any mind, tho. By staying contained, you can figure out what makes your brand tick, while staying out of the spotlight and not getting tarred as a failure while you work out the inevitable kinks. You'll burn through less capital and less credibility if you make your mistakes locally, not nationally.
Learn to say no. "Getting to Yes" may be the name of an evergreen negotiation handbook, but "getting to no" is a better ambition for bev entrepreneurs to harbor. Learn to say no to big distributors you won't be able to adequately support, and to retail chains (especially Walmart) where you'll get lost on a bottom shelf and endlessly chiseled for pricing concessions. The recent annals of troubled bevcos is filled with those who outran their coverage. If you stay contained within your chosen channel or geography and still tear the cover off the ball (to switch sporting metaphors), those other distributors and retailers will want you even more.
Don't be overawed by the big systems. The Coke, Pepsi and Dr Pepper Snapple bottling systems are finely tuned machines for moving high-volume, high-velocity products at affordable price points through the chains. That doesn't mean they're right for you. Big systems work best for big brands, as one observer recently put it. Even if you do partner with one, maintain flexibility over distribution until you're further along. And as a corollary to all this: don't be so dazzled by the resumes of big-company vets. Their credentials may be only remotely relevant to your own needs - unless your overarching strategic aim is to cook up 10-for-$10 deals with grocers.
It's better to underplay than overplay your nutritional claims. We're in an era of heightened regulatory scrutiny and, given the excesses of the recent past, can't really claim it's undeserved. So you're better off underplaying your nutritional and functional claims than overplaying them - that can only increase the likelihood of unwanted attention from regulators, and won't do as much as you think to impress jaundiced consumers.
Think strategically about the strategics. If your main game plan is to launch your product, fake it for a year or two, and get taken out by Coke, Pepsi or DPS at a nice premium, then you shouldn't be in this biz. Figure you're going to be in this game for a while, and think of strategics as cos that offer real help in staying in the game. From Tata to Sunsweet to copackers like Whitlock, there's a world of strategics that fit that bill, beyond KO, PEP and DPS.
Stop pounding on the DSD guys already. True, some DSD shops are grasping, whining, endlessly finagling operatives. (At BBI, we think that's part of their charm.) Maybe they really aren't right for your brand, at least at this stage of development or in the channels you're targeting. Fine. It's worth remembering, tho, that there haven't been any shelf-stable brands that have achieved megasuccess without going through the DSD network during their prime growth phase. So pick a limited # of DSD partners - maybe just 1 - make sure you're on the same page, and see if it can work for you. Like democracy, it's sloppy, but nobody's found a better way.
Stand for something. We don't buy that old saw that certain categories - tea, enhanced water, energy - are tapped out, with no room for new entrants. Nor does innovation have to mean employing some earth-shattering new ingredient with a tongue-twisting name that can turn Ozzy Osbourne into a track star. As existing brands move through their life cycle, there's room for reasonably straightforward brands to emerge, even without a lot of bells and whistles. But that only works if your brand stands for something, right from the outset. Trying to add on values or personality down the line is way harder, and less likely to be convincing to consumers.  

Celsius Holdings Inc, grappling with hi costs and revenues that haven't come close to meeting earlier expectations, said it's voluntarily withdrawing listing of its common stock and warrants on NASDAQ effective end of year and anticipates that its shares will commence trading on OTC Bulletin Board "on or about Jan 3" under current symbols. Shares trade as CELH . . . Kraft said its 12-year partner Starbucks plans to halt shipments of its bagged coffees to Kraft on Jan 29, tho Kraft is fighting decision. MarketWatch cited Dec 17 court filing in which Kraft said that by week of Feb 13 it would be out of stock on many items, "thereby causing harm to many of its retail customers in the form of lost sales." 

It's not unexplored terrain by any means, but Honest Tea co-founder Seth Goldman offered compelling review of capital-related issues - both raising it and spending it - during rise of co that's about to be annexed by Coca-Cola in Feb. Some highlights:

Starting with $250K Bethesda, Md-based co started with $500K, including money from well-heeled partner, Yale prof and game-theory expert Barry Nalebuff. Seth pitched tea to local Whole Foods buyer, refused to provide free fills or other concessions and got spot in store anyway. Soon brand was best-selling tea in 17 WF stores it was in. Co raised $1.2 mil in 99 to expand, garnering rich valuation of $4 mil on annual sales of $250K. Once you have network of investors, Seth noted, it's not that hard to raise money in $3-4 mil range as friends of friends come in. Rather than going for big round, co generally pulled in $1 mil every other year, so as not to set unmeetable expecations among investors. After decade in biz, co was pulling in $9 mil, enough to interest int'l food/bevcos. Co was "never robustly profitable," Goldman said, but approached break-even once in a while to demonstrate that biz was fundamentally sound. Basic truth, he noted, is that you can choose between fast growth or profitability, but are unlikely to attain both.

Coke bought 40% stake 3 years ago, with Seth swayed to do deal once it was clear KO's VEB brand-incubation unit was buying into core values of health/wellness, sustainability, social responsibility. Deal was modeled on structure of Danone's investment in Stonyfield Farm, organic yogurt co whose founder Gary Hirshberg has been Honest Tea mentor/investor. Earliest investors made over 20X their dough.

Practical Advice on Capital Raise: Common Shares, Modest Raises, No-Fly Zone Institutional investors will insist that they need "different structure" to equity, but you don't have to acquiesce in demands for participating preferred shares and other convoluted terms. Honest Tea itself had nothing but common stock until it did deal with KO, Goldman noted. Not fair to family/friends who sustained you in early days. He did go in for warrants so that, as co raised more money, management retained solid stake. (One institutional investor had wanted to set aside some options for "future management." Goldman, the ceo, wasn't aware that there were any open key slots but later found out options' role: "to replace the ceo." "That was the end of the conversation," Seth said.) Tho it's risky to be undercapitalized, Goldman also warned entrepreneurs to resist overtures from institutions to raise more capital in order to move faster. That just boosts overhead to point where you need to go back for more capital. More broadly, it's important to manage your investors carefully. "Overcommunicate" to them, but trust your own gut on major decisions. Had he not done so, he would have found himself pushed into participating in energy drinks and low-carb bevs.

More advice: "never fly anywhere to meet with an investor . . . You fly out to sell tea." (If you can piggyback meeting on sales call, fine, but otherwise money people can come to you.) And don't get yourself in position where you need to pin hopes on single investor. Seth said he still regrets time in 01 that, desperate for capital, he missed son's 8th birthday because he agreed to fly to Boston to make pitch to wealthy doc's family.

DSD, Paid Ads, Self-Producing: Nix on All of 'em! Seth offered plenty of advice on spending side, too. DSD? Building network is "very expensive" and Seth believes much of that money would be poorly spent. "No more than 10 good DSD distributors across the country that are worth putting money into," he said. (Exceptions would have to include NY's Big Geyser, which still has brand after its cutover to Coke in rest of country.) Ads? "Spending money on paid media just isn't something that makes sense." Self-producing? Trying that at Penn plant "nearly took us under . . . it did take our 2 partners under." (Plant is thriving now as Castle Co-Packing.)  

Tho entrepreneurs have been bemoaning capital drought, most speakers at recent BevNet Live conference in Santa Monica, Calif, argued that the problem isn't lack of capital but suitable investment targets and ability to get on same page on valuations, control and the like. "There are dollars out there," assured First Capital's Bill Anderson, pointing to significant raises by cos like FRS and Vita Coco and influx of private-equity dollars into beer cos like Anchor, Carolina Brewing and Magic Hat/Pyramid. So what's the hangup?

Part of it is disconnect between amounts being sought by startups and larger amounts that institutions need to deploy. "Many entrepreneurs raise too much money, too early, at too high a valuation," said Andy Whitman of 2X Consumer Products Growth Advisors. Better, he advised, to make all your mistakes with small dollars. Constrained resources encourage cos to focus on smaller markets where they can have greater impact, noted Jo Anne Miller of angel group Golden Seeds. Good role model cited by Whitman is Honest Tea's Seth Goldman, who generally brought in $1 mil every other year, which allowed him "to build his business on very favorable investment terms." Going for $5 mil in single swoop would have fostered "different expectations from the investors," warned Andy.

There was evidence at conference that pushing and pulling on issue will continue. Among founders, almost everybody wants $2 mil, but "I don't know why that is," said First Beverage's Anderson. "It's not tied to a specific model." In another session, tho, Zola Acai founder Chris Cuvelier, while urging entrepreneurs not to be underfunded, warned that if you only need $2 mil and institution tells you its portfolio model calls for $5 mil, you probably shouldn't do deal.

Go Simple on Deal Structure; Don't Haggle Over a Point or Two Lotsa speakers urged simplicity in deal structure rather than overdoing it on preferred shares, different voting classes and the like. "Personally, I like to see deals that are plain," said Michael Burgmaier, managing dir of Silverwood Partners. Honest Tea's Goldman never diverged from having only common shares (story below). At angel level early in co's development, noted First Beverage's Anderson, "you're picking valuation levels out of a hat," despite emotion invested in issue. "You don't want to overvalue the company in the early stages and early rounds" to point where co is constantly trying to catch up with valuation and likelihood increases of future cramdown (lower-valuation round) or clawback (when ownership is wrested back from entrepreneur), noted Burgmaier. In later, institutional stages, it doesn't necessarily pay to haggle too much on a few points of ownership stake: "We'll act same way" in oversight regardless of stake, said Whitman of 2X Consumer Products. Offered Knudsen: "We're much more concerned with partnership" than who's got majority; "difference between 49% and 51% is really meaningless."

What Capital Providers Want to See Just about everyone cited strong, grounded management team and personal connection that can weather inevitable setbacks. And in post-bubble days, they want to see lean operating style. "Profitability really does matter," even in recessionary environment, advised Knudsen. With deep background in beer, First Beverage's Anderson pointed to successful model for craft brands - "artisanal, local brands with a very authentic story" - and said that should work for NAs, too.

What Entrepreneurs Want to See For their part, entrepreneurs seem to appreciate VC partners that don't operate with too heavy a hand. FRS is "blessed" to have Oak Partners as lead VC: they do their homework but stay out of way, tho co finds it helpful at times to pull in their outside perspective, said ceo Carl Sweat. First Beverage's Anderson advised startups to seek capital providers that possess industry knowledge and can offer some strategic value in realms like marketing or operations.